Facing digital disruption

The fact that technology disrupts entrenched business models is no longer news. How business leaders respond to these disruptions, however, is the most important challenge facing corporations today. What will Mercedes do about driverless cars? How will Comcast and other cable companies respond as content suppliers like HBO stream programming online directly to consumers? Are the world’s top executives equipped to navigate this new landscape?

As I’ve studied leadership and the digital transformation, I have encountered talented leaders who are successfully embracing the new environment. For example, when David Kenny became CEO of the Weather Channel in 2012, he knew immediately that a technology-driven shift was required.

The cable channel, founded in 1982, had grown and profited by selling traditional advertising to accompany its television programming. But the advent of the smartphone had quickly changed the habits of legions of viewers. A Weather Channel app gave the company a vital presence on the ubiquitous mobile devices and users were checking the weather multiple times each day. Unfortunately, these quick weather checks generally lasted less than five seconds each and left little to no opportunity for the Weather Channel to engage its customers with advertising.

Kenny set in motion a dramatic shift in the company’s business model. The Weather Channel, he decided, would use its technology to drive the change. Starting in the US, Weather Channel approached retailers like Walmart and Target and asked for daily sales information for various products over the past two or three years. Armed with this information, they were able to start correlating weather patterns with product sales. The idea is that many of the products people choose to buy are highly influenced by the weather.

They found, for example, that women buy different types of shampoos depending on if the forecast is humid or dry. Knowing the weather forecasts for millions of locations around the world, The Weather Channel approached Procter and Gamble Co. (P&G) with a suggestion that this data could help drive shampoo sales. P&G tested the concept with its Pantene shampoo brand, advertising specific versions of it depending on the weather forecasts in various locations. Its sales leaped 28 %.

Such dauntless moves are not for the faint of heart. Blueprints for new business models are often unclear in the midst of major transformations and this requires a leader to have an audacious vision and an ability to make tough decisions. Creating a new organization structure that encourages rather than stifles innovation while still leveraging the business’s core strength is a leadership skill that is in high demand but short supply.

Consider Hubert Joly, named CEO of Best Buy Co. Inc. in 2012. The $40 billion big box retailer with 1600 stores in the US was facing a crisis that had hammered the bricks and mortar retail sector. The advent of e-commerce was making Best Buy less relevant and essentially turning it into a showroom for Amazon. Customers came in, checked out the big screen televisions or digital cameras, chatted with a salesperson and then walked out the door and ordered the product on Amazon. Trying to match prices with Amazon was a losing strategy.

Joly had to rethink the status quo and make the decision that business as usual would not suffice. Best Buy still had plenty of foot traffic and it provided value because customers want to see and touch a product before they buy it. How could the company monetize this value? What competitive advantage did it hold over Amazon? Ironically, the very bricks and mortar that had hampered it would be Best Buy’s ace in the hole. Though Apple has its own retail stores, most technology giants like Samsung, HP, Dell, Sony, LG, Vizio, Panasonic, Nikon and Olympus have no physical showplace for their products.

Under Joly’s Renew Blue effort, Best Buy approached these manufacturers, created partnerships and initiated a store-within-store buying experience in which some of the world’s leading technology companies pay a fee to display their products in Best Buy. Suddenly Best Buy is in the real estate business offering invaluable display space for these manufacturers to show off their wares.

Will this strategy fuel future growth for Best Buy? Can Joly and other CEOs of global organizations acclimate and operate effectively in this fluid environment over the long haul? Given the challenge, there are lessons to be learned from these pioneers:

l Technology tends to disrupt organizations where the current way of doing business is no longer the best way to do business.

l When a leader commences a major shift, the chances are good that profits will initially decline before they rise again. Going through a transition, building capability, a business loses some of the traction it previously had. Holding onto the golden goose is enticing, even if that goose is inevitably going to disappear. Tenacity and strength of your convictions are required to make the change and survive a down period.

l Building a different kind of organization sometimes requires that the old and new organizations run in parallel for some period of time. The New York Times continues to print its daily newspapers but its website is where the future lies. Managing two organizations simultaneously is a tough challenge, akin to changing the engine while the plane is in the air. But the more difficult the task, the more important leadership becomes.

During this digital transformation, the best leaders find a way to slow things down, become clearer and gain consensus even during the most chaotic of transitions. As Kenny said, “Speed without a purpose is chaos. Velocity is speed toward a purpose.”

Sunil Gupta is the Edward W. Carter Professor of Business Administration and chair of the general management programme at Harvard Business School. He is also the co-chair of the executive education programme on driving digital and social strategy and is teaching at an upcoming programme Driving Growth Through Innovation—India from 3-6 August 2015.

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